Can grandparents get tax benefits from 529 plans for grandchildren?
The best current tax benefit for education-related expenses is the American Opportunity Tax Credit. To qualify for the AOTC, the student must be a dependent on your tax return, so that’s going to rule out most grandparents from claiming the AOTC (or the Lifetime Learning Credit).
The biggest financial benefit to grandparents of using 529 plans is that the money comes out of your estate all at once. You can give a grandchild an annual gift without estate or gift tax consequences ($14,000 in 2015), but you can deposit 5 years worth of annual gifts into a 529 plan today ($70,000). That money comes out of your estate but you retain control as the 529 account owner. That’s not really a current tax benefit, but it could help with your estate planning, especially with two grandparents and multiple grandchildren.
The question of how grandparents can best help with college costs is complex and often overlooked. It is very easy to make mistakes that have financial aid or tax consequences. We’ve written about this in more detail which you can find here. If you have questions about your specific situation, please drop us a note.
